SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
BIG LOTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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[BIG LOTS LOGO]
Big Lots, Inc.
300 Phillipi Road
Columbus, Ohio 43228
April 8, 2003
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders,
which will be held at the Company's offices at 300 Phillipi Road, Columbus,
Ohio, on Tuesday, May 20, 2003, at 9:00 a.m. EDT.
The following pages contain the formal Notice of Annual Meeting of
Shareholders and the Proxy Statement. You will want to review this material for
information concerning the business to be conducted at the Annual Meeting.
Your vote is important. Whether you plan to attend the Annual Meeting of
Shareholders or not, you are urged to complete, date and sign the enclosed proxy
card and return it in the enclosed envelope. If you attend the Annual Meeting of
Shareholders, you may revoke your proxy and vote in person if you wish, even if
you have previously returned your proxy.
On behalf of the Board of Directors, we would like to express our
appreciation for your continued interest in the affairs of the Company.
MICHAEL J. POTTER, ALBERT J. BELL,
Chairman, Vice Chairman and
Chief Executive Officer and President Chief Administrative Officer
[BIG LOTS LOGO]
Big Lots, Inc.
300 Phillipi Road
Columbus, Ohio 43228
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 2003
Notice is hereby given that the Annual Meeting of Shareholders of Big Lots,
Inc. will be held at the Company's offices at 300 Phillipi Road, Columbus, Ohio,
on Tuesday, May 20, 2003, at 9:00 a.m. EDT, for the following purposes:
1. The election of nine directors of the Company; and
2. To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on March 25, 2003, are
entitled to notice of and to vote at the Annual Meeting of Shareholders or any
adjournment thereof.
By order of the Board of Directors.
April 8, 2003
CHARLES W. HAUBIEL II,
Vice President, General Counsel
and Corporate Secretary
---------------
YOUR VOTE IS IMPORTANT. SHAREHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE TO WHICH NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE ANNUAL
MEETING OF SHAREHOLDERS, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU
WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
[BIG LOTS LOGO]
Big Lots, Inc.
300 Phillipi Road
Columbus, Ohio 43228
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PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (sometimes hereinafter the "Board") of Big
Lots, Inc., an Ohio corporation (the "Company"), for use at the Annual Meeting
of Shareholders to be held on May 20, 2003 (the "Annual Meeting"). The Notice of
Annual Meeting of Shareholders, this Proxy Statement and the accompanying proxy
card, together with the Company's Annual Report to Shareholders for the fiscal
year ended February 1, 2003, are first being mailed to shareholders on or about
April 8, 2003.
The close of business on March 25, 2003, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting. At that date, the Company had outstanding 116,631,804 common
shares, $.01 par value per share. Each of the outstanding common shares is
entitled to one vote. The holders of common shares have no cumulative voting
rights in the election of directors.
All voting shall be governed by the Code of Regulations of the Company
pursuant to the General Corporation Law of the State of Ohio. For purposes of
Proposal One, the nine director nominees having the highest votes cast shall be
elected. Votes will be cast for only those nominees for whom authority is given.
For purposes of Proposal Two, a majority of shares present and voting must be
cast in favor of the proposal for it to be approved. In the case of either of
the proposals, broker non-votes will be treated as votes not cast, and will not
have any effect. Abstentions will be treated as shares not voted with respect to
Proposal One, and will not be calculated in the tabulation. In the case of
Proposal Two, abstentions will be treated as votes cast against the proposal,
and, if no instructions are given, the persons named as Proxies in the
accompanying proxy card intend to vote FOR Proposal Two. A proxy may be revoked
at any time before it is exercised by filing with the Secretary of the Company a
notice of revocation or a duly executed proxy bearing a later date. A proxy may
also be revoked by attending the Annual Meeting and giving notice of revocation
to the Secretary of the meeting, either in writing or in open meeting.
Tabulation shall be performed by National City Bank, the Company's Transfer
Agent, as inspected by duly appointed officers of the Company.
PROPOSAL ONE: ELECTION OF DIRECTORS
Messrs. W. Eric Carlborg, Michael L. Glazer and William A. Wickham are not
standing for re-election, and will be retiring from the Board upon the election
and qualification of their respective successors. Messrs. Carlborg, Glazer and
Wickham have been directors of the Company since 1997, 1991 and 1992,
respectively. The six remaining incumbent directors have been nominated for
re-election, along with Messrs. Philip E. Mallott, Ned Mansour and Russell Solt.
1
At the Annual Meeting, the common shares of the Company represented by the
proxies will be voted, unless otherwise specified, for the election as directors
of the nine nominees named below. Proxies cannot be voted at the Annual Meeting
for more than nine persons, although additional nominations can be made by
shareholders at the meeting.
Set forth below is certain information relating to the nominees for
election as directors.
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE FOR THE PAST FIVE YEARS SINCE
---- --- ----------------------- --------
Albert J. Bell 42 Vice Chairman and Chief Administrative Officer of the 2000
Company; former Executive Vice President, General
Counsel and Secretary of the Company.
Sheldon M. Berman 62 Chairman, Macaroons, Inc. (marketing services); 1994
Chairman, Xtreem Creative, Inc. (venture capital
services); former Chairman, President and founder,
Shelly Berman Communicators (retail marketing and
advertising).
David T. Kollat 64 President and Founder, 22, Inc. (research and management 1990
consulting).
Brenda J. Lauderback 52 former President -- Wholesale Group, Nine West Group, 1997
Inc. (retail and wholesale footwear); former
President -- Footwear Wholesale, U.S. Shoe Corporation
(retail and wholesale footwear); former Vice President,
General Merchandise Manager, Dayton Hudson Corporation
(retail stores).
Philip E. Mallott 45 Independent Financial Consultant; part-time retail stock New
analyst, Coker & Palmer (securities brokerage services); Nominee
former Vice President and Chief Financial Officer,
Intimate Brands, Inc. (retail stores).
Ned Mansour 53 former President, Mattel, Inc. (designer, manufacturer New
and marketer of toy products); former President, Nominee
Corporate Operations and General Counsel, Mattel, Inc.
Michael J. Potter 41 Chairman, Chief Executive Officer and President of the 2000
Company; former Executive Vice President and Chief
Financial Officer of the Company.
Russell Solt 55 Executive Vice President and Chief Financial Officer, New
West Marine, Inc. (specialty retailer and catalog Nominee
company); former Senior Vice President and Chief
Financial Officer, West Marine, Inc.; former President,
Venture Stores (discount retailer).
Dennis B. Tishkoff 60 Chairman and Chief Executive Officer, Drew Shoe 1991
Corporation (manufacture, import and export, retail and
wholesale footwear); President, Tishkoff and Associates,
Inc. (retail consultant); former President and Chief
Executive Officer, Shoe Corporation of America (retail
footwear). Shoe Corporation of America filed for
bankruptcy on June 14, 1999.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES
LISTED ABOVE.
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BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
Seven meetings of the Board of Directors were held during the Company's
fiscal year ended February 1, 2003 (sometimes hereinafter "fiscal 2002"). The
Board has an Audit Committee, a Compensation Committee and an Executive
Committee. During the period for which he or she was a director in fiscal 2002,
each director attended at least 75% of all meetings of the Board and the
committees on which he or she served.
AUDIT COMMITTEE. Messrs. Carlborg and Berman and Ms. Lauderback are the
members of the Audit Committee. Each member of the Audit Committee is an
independent director as defined in the New York Stock Exchange rules. The Audit
Committee's responsibilities are included in its written charter. The Audit
Committee met seven times during fiscal 2002.
COMPENSATION COMMITTEE. Messrs. Kollat, Carlborg and Tishkoff are the
members of the Compensation Committee, which administers the Company's stock
option plans and advises the Board of Directors with respect to compensation
matters. The Compensation Committee met twice during fiscal 2002.
EXECUTIVE COMMITTEE. Messrs. Wickham, Kollat and Tishkoff are the members
of the Executive Committee. Unless otherwise determined by the Board, the
Executive Committee is generally vested with all the powers of the Board of
Directors, except that the Executive Committee cannot fill vacancies among the
directors or in any committee, or take any other action not permitted to be
delegated to a committee under Ohio law or the Company's Code of Regulations.
Notwithstanding this authority, both the Board and the Executive Committee view
the Executive Committee's role as acting as a liaison to the full Board and
assisting management with matters of convenience. The Executive Committee is
also responsible for interviewing and nominating candidates for election as
directors of the Company. The Executive Committee will not consider nominees
recommended by shareholders. The Executive Committee met twice during fiscal
2002.
DIRECTOR'S REMUNERATION. Pursuant to arrangements with the Company,
directors who are not officers and who are not involved in the daily affairs of
managing the Company receive an annual retainer. In fiscal 2002, the annual
retainer was increased to $30,000. In addition, each such director receives
$1,000 for each Board meeting attended in person ($500 for each Board meeting
attended by phone), and, pursuant to an increase in fiscal 2002, $1,000 for each
committee meeting attended in person ($500 for each committee meeting attended
by phone). During fiscal 2002, seven directors, Messrs. Berman, Carlborg,
Glazer, Kollat, Tishkoff, Wickham and Ms. Lauderback, were parties to such
arrangements. In addition, these seven directors constitute outside directors
and receive stock option grants under the Director Stock Option Plan. During
fiscal 2002, each of these seven directors received an option to acquire 10,000
common shares of the Company pursuant to the Director Stock Option Plan (please
see Director Stock Option Plan).
RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Glazer is a director of Brookstone, Inc., Berkshire Life Insurance
Company, KB Holdings, Inc. (an affiliate of Bain Capital, Inc.) and Stage
Stores, Inc. Mr. Kollat is a director of The Limited, Inc., Cooker Restaurant
Corp., Cheryl & Co., Select Comfort, Inc., Wolverine Worldwide, Inc. and Cone
Mills Corporation. Ms. Lauderback is a director of Irwin Financial Corporation
and Louisiana -- Pacific Corporation. Mr. Tishkoff is a director of Drew Shoe
Corporation. Mr. Mallott is a director of Too, Inc. Mr. Mansour is a director of
The Ryland Group.
The Company customarily retains SBC Advertising for communications and
advertising services. During fiscal 2002, the Company paid fees in the amount of
$2,400,914 to SBC Advertising. Mr. Wickham is the majority owner of SBC
Advertising and serves as its Chairman and Chief Executive Officer. As noted
above, Mr. Wickham is not standing for re-election and will be retiring from the
Board upon the election of his successor.
3
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 1, 2003, certain information
with regard to the beneficial ownership of the common shares of the Company by
each holder of 5% of such shares, each director and nominee individually, each
of the executive officers named in the Summary Compensation Table, and all
executive officers and directors of the Company as a group.
AMOUNT AND PERCENT OF
NAME OF BENEFICIAL OWNER NATURE OF BENEFICIAL OUTSTANDING
OR IDENTITY OF GROUP OWNERSHIP(6)(7) SHARES
- ------------------------ -------------------- -----------
Albert J. Bell 677,148 *
Sheldon M. Berman (1) 57,188 *
W. Eric Carlborg 19,000 *
Michael L. Glazer 109,650 *
David T. Kollat 133,847 *
Kent Larsson 216,315 *
Brenda J. Lauderback 19,300 *
Philip E. Mallott 0 *
Ned Mansour 3,000 *
Jeffrey G. Naylor 40,000 *
Michael J. Potter 715,378 *
Russell Solt 0 *
Dennis B. Tishkoff 45,048 *
Brad A. Waite 359,324 *
William A. Wickham (2) 175,501 *
First Pacific Advisors, Inc. (3) 6,395,600 5.50%
FMR Corp. (4) 17,389,821 14.98%
Lord, Abbett & Co. (5) 10,334,851 8.90%
All directors & executive officers as a group (16 Persons) 2,933,449 2.53%
- ---------------
* Represents less than 1% of the outstanding common shares.
(1) Includes 5,468 shares owned by Macaroons, Inc.
(2) Includes 54,687 shares owned by SBC Advertising, Inc. and 24,000 shares
owned by SBC Ltd.
(3) In its Schedule 13G dated February 11, 2003, First Pacific Advisors, Inc.
stated that it beneficially owned the number of shares reported in the table
as of December 31, 2002, has shared voting power over 2,368,200 of the
shares and shared dispositive power over all the shares.
(4) In its Schedule 13G dated February 14, 2003, and its accompanying materials,
FMR Corp. stated that it beneficially owned the number of shares reported in
the table as of December 31, 2002, which number includes 14,076,942 shares
(12.120% of the common shares at that date) beneficially owned by Fidelity
Management & Research Company in its capacity as investment advisor to
various investment companies registered under Section 8 of the Investment
Company Act; and 2,448,503 shares (2.108% of the common shares at that date)
beneficially owned by Fidelity Management Trust Company as a result of its
serving as investment manager for various institutional accounts. Of the
shares reported in the table above, FMR Corp. has sole voting power over
3,153,289 shares and sole dispositive power over all 17,389,821 shares.
(5) In its Schedule 13G dated January 28, 2003, Lord, Abbett & Co. stated that
it beneficially owned the shares reported in the table as of December 31,
2002, and that it has sole voting power and sole dispositive power over all
the shares.
4
(6) The persons named in the table, other than First Pacific Advisors, Inc. (see
note (3) below), FMR Corp. (see note (4) below), Lord, Abbett & Co. (see
note (5) below), and as described in note (7) below, have sole voting power
and investment power with respect to all common shares of the Company
subject to the information contained in the footnotes to this table. The
amounts described in the table are adjusted to account for the 5 for 4 stock
splits which occurred in December, 1996 and June, 1997, and include shares
that may be acquired within 60 days of the record date under stock options
exercisable within that period. Percentage ownership was based on common
shares of the Company outstanding at February 1, 2003, unless otherwise
stated. Of the shares reported for Messrs. Bell, Berman, Carlborg, Glazer,
Kollat, Larsson, Mallott, Mansour, Naylor, Potter, Solt, Tishkoff, Waite,
Wickham, Ms. Lauderback and for all directors and executive officers as a
group, 646,876, 42,439, 19,000, 16,626, 50,252, 173,125, 0, 0, 40,000,
649,688, 0, 43,878, 307,188, 50,252, 19,000 and 2,410,874, respectively, are
shares which may be acquired within 60 days of the record date pursuant to
exercisable stock options.
(7) The beneficial ownership of Messrs. Bell, Larsson, Potter and Waite includes
22,294, 4,889, 30,908 and 15,588 shares, respectively, in contributions to
the Company's Supplemental Savings Plan, which contributions are reflected
as investments in phantom units of the Company's common shares.
The addresses of the persons shown in the table above as a beneficial owner
of more than 5% of the Company's common shares are as follows: First Pacific
Advisors, Inc., 11400 West Olympic Boulevard, Suite 1200, Los Angeles, CA 90064;
FMR Corp., Fidelity Management & Research Company, and Fidelity Management Trust
Company, 82 Devonshire Street, Boston, MA 02109; and Lord, Abbett & Co., 90
Hudson Street, Jersey City, NJ 07302.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934 THAT MIGHT INCORPORATE THIS PROXY STATEMENT OR FUTURE
FILINGS WITH THE SECURITIES EXCHANGE COMMISSION, IN WHOLE OR IN PART, THE
FOLLOWING EXECUTIVE COMPENSATION REPORT OF THE COMPANY'S COMPENSATION COMMITTEE,
THE REPORT OF THE COMPANY'S AUDIT COMMITTEE AND THE PERFORMANCE GRAPH WHICH
FOLLOWS SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILING.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION REPORT OF THE COMPANY'S
COMPENSATION COMMITTEE
Compensation of the Company's executive officers is administered by the
Compensation Committee of the Board of Directors (the "Compensation Committee").
The Compensation Committee consists of three independent, non-employee
directors. The Compensation Committee's responsibilities include establishing
the policies and procedures applicable to the compensation of the Company's
executive officers and reporting on them to the Board of Directors; recommending
to the Board of Directors the salaries, incentive compensation and other
remuneration of executive officers; and reviewing the salaries, compensation and
other remuneration of all other senior officers.
The Compensation Committee believes that the strong performance of its
executive officers is the key to the Company's success. Consequently, the
Compensation Committee applies aggressive compensation incentives, both
short-term and long-term, to maximize shareholder value. The Compensation
Committee feels that these incentives should be implemented with a high degree
of responsiveness to the performance of the Company. To achieve this
responsiveness, importance is placed upon executive officer participation in the
Company's performance through equity ownership, and through bonuses based upon
the Company's performance. The basic compensation components for all executive
officers, including the Company's Chief Executive Officer ("CEO"), consist of
salary, bonus opportunities under the Company's 1998 Key Associate Annual
Incentive Compensation Plan, as amended (the "Bonus Plan"), and stock options
granted under the Company's 1996 Performance Incentive Plan, as amended (the
"Incentive Plan"). The Compensation Committee believes these components properly
align the financial interests and success of executive officers with those of
the shareholders.
5
CEO SALARY
Mr. Potter's base salary was originally established by his employment
agreement dated June 26, 2000. Mr. Potter's employment agreement does not
provide for any automatic salary increases. Instead, such increases (if any) are
made in the sole discretion of the Compensation Committee during its annual
review process of the Company's executive officers. The Compensation Committee
has chosen not to adopt any specific schedule of salary increases, and may
adjust Mr. Potter's salary without regard to adjustments in the salaries of
other executive officers of the Company. Generally, the Compensation Committee
will look to factors such as the Company's planned and actual increase in pretax
income, market performance of its common shares, business growth and the
achievement of other previously established non-financial criteria, in
determining the amount of Mr. Potter's salary increase. The Compensation
Committee does not weight such factors in advance or tie Mr. Potter's salary to
specific performance criteria. For fiscal 2002, Mr. Potter's salary was not
increased.
CEO BONUS
Mr. Potter's bonus is determined in accordance with the Bonus Plan. Under
the Bonus Plan, Mr. Potter's bonus is based upon the Company's achievement of
specific earnings targets established by the Compensation Committee at its
February meeting at the beginning of each fiscal year. For fiscal 2002, the
Compensation Committee derived its bonus targets from the Company's planned
earnings for the fiscal year established by the Board of Directors at the
beginning of the fiscal year. The Compensation Committee determined the CEO's
bonus goals based on whether the Company achieved certain predetermined
performance levels (e.g., floor, target and stretch) as applied to the Company's
earnings targets. Although Mr. Potter's employment agreement provides him with
the opportunity to earn a "target" bonus equal to his base salary and a
"stretch" bonus equal to twice his base salary (no right to a minimum bonus
exists in his employment agreement), the establishment of the Company's
performance targets applicable to his bonus goals are solely in the Compensation
Committee's discretion. As a result of the Company's performance in fiscal 2002,
Mr. Potter received a stretch bonus equal to twice his base salary.
CEO EQUITY INCENTIVES
The Compensation Committee believes that the grant of significant stock
options to Mr. Potter further links Mr. Potter's interests with the interests of
the shareholders. Consistent with these objectives, Mr. Potter's equity
interests in the Company, through stock options granted under the Incentive
Plan, comprise his primary compensation and align his personal rewards and
motivation with Company performance and shareholder value. Stock options are
granted to Mr. Potter at the discretion of the Compensation Committee. After
considering the number of stock options previously granted to him, the
Compensation Committee awarded Mr. Potter a stock option grant of 325,000 shares
for fiscal 2002. All of Mr. Potter's stock options, including those granted in
fiscal 2002, have an exercise price equal to the fair market value of the
Company's common shares at the date each option is granted and become
exercisable over time during employment, in equal amounts over a 5 year period.
NON-CEO SALARY
In connection with his promotion to Vice Chairman and Chief Administrative
Officer ("CAO"), Mr. Bell entered into an employment agreement dated June 26,
2000. Additionally, on July 29, 2002, Messrs. Larsson and Waite (collectively,
the "Executive Vice Presidents") entered into employment agreements. Although
Messrs. Bell, Larsson and Waite's employment agreements established their
respective base salaries, the employment agreements do not provide for any
automatic salary increases.
The salary component for the Company's executive officers other than the
CEO, CAO and Executive Vice Presidents is initially based upon industry data for
comparable positions at similarly sized companies, as adjusted to reflect the
experience and expertise of the individual. The Company attempts to limit the
comparison market to Columbus, Ohio wherever possible. However, where the
position is unique to companies included in the Standard & Poor's Retail Stores
Index, the Company collects industry data reflective of members of that peer
group that
6
are of similar size to the Company. Salaries of non-CEO executive officers are
reviewed annually and adjusted to reflect growth in the individual's
performance, the individual's achievement of previously established goals, the
individual's relative contribution to the overall performance of the Company and
any changes in the individual's responsibilities. Salary adjustments are
subjectively determined, and are not formally tied to Company performance.
NON-CEO BONUS
The bonus component for non-CEO executive officers is determined in
accordance with the Bonus Plan. The bonus component for non-CEO executive
officers consists of a percentage of salary earned as the Company achieves
specific earnings targets established by the Compensation Committee at its
February meeting at the beginning of each fiscal year. The Compensation
Committee derives its bonus targets and defines the bonus goals (e.g., floor,
target and stretch) from the Company's planned earnings for the fiscal year
projected by the Board of Directors at the beginning of the fiscal year. Other
than for Messrs. Bell, Larsson and Waite, the percentage of salary is set by
position level, and is subjectively determined. Mr. Bell's employment agreement
provides him with the opportunity to earn a "target" bonus equal to his base
salary and a "stretch" bonus equal to twice his base salary (no right to a
minimum bonus exists in his employment agreement). Messrs. Larsson and Waite's
employment agreements provide each of them the opportunity to earn a "target"
bonus equal to 60% of their respective base salaries and a "stretch" bonus equal
to 120% of their respective base salaries (no right to a minimum bonus exists in
their employment agreements).
As with the Company's CEO, the establishment of the Company's performance
targets applicable to Messrs. Bell, Larsson and Waite, as well as the bonus
goals of the other non-CEO executive officers, remain solely in the Compensation
Committee's discretion. As a result of the Company's performance in fiscal 2002,
each of the Company's non-CEO executive officers (including Messrs. Bell,
Larsson and Waite) received a stretch bonus. The Compensation Committee believes
that a significant portion of the total compensation of the non-CEO executive
officers should be bonus and should be directly tied to the Company's
performance.
NON-CEO EQUITY INCENTIVES
The equity participation component for executive officers other than the
CEO consists primarily of stock options granted under the Incentive Plan. Stock
options are granted at the discretion of the Compensation Committee, typically
at the beginning of each fiscal year during the Compensation Committee's annual
review process and in an amount determined by position and performance in the
prior fiscal year. Stock options have an exercise price equal to the fair market
value of the Company's common shares at the date each option is granted. In
addition, stock options are often granted in connection with the promotion of an
individual to a greater level of responsibility. The number of shares covered by
each option grant is set in advance by position, subject to adjustment based
upon the Compensation Committee's subjective perception of the individual's
performance. Stock options vest over a five year period, based upon time passage
during employment and not based upon performance criteria. The Compensation
Committee's determination of the timing and amount of each grant is subjective,
based upon its assessment of the need and appropriateness of each grant, in
light of the performance of the respective executive officer and the performance
of the Company as a whole. The Compensation Committee considers the
recommendation of, and relies upon information provided by, the CEO in making
its assessment and reaching its decision with respect to non-CEO executive
officers. The Compensation Committee believes that its policy in determining
stock option grants best utilizes stock options as a specific long-term
performance incentive, by basing an important portion of the executive officers
compensation upon the future performance of the Company's common shares.
DEDUCTIBILITY OF ANNUAL COMPENSATION OVER $1 MILLION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the tax deductibility for federal income tax purposes
of compensation paid to the Company's CEO and the four highest compensated
executive officers (other than the CEO) in excess of $1 million. Compensation in
excess of $1 million may be deducted if it is "performance-based" compensation
within the meaning of the Code. For
7
fiscal 2002, the Company believes it has taken the necessary actions to preserve
the deductibility of all payments made under the Company's compensation plans.
As the Code or the regulations promulgated thereunder change, the Compensation
Committee presently intends to take reasonable steps to ensure the continued
deductibility of payments under the Company's compensation plans while at the
same time considering the goals of the Company's executive compensation
philosophy.
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
David T. Kollat, Chairman
W. Eric Carlborg
Dennis B. Tishkoff
REPORT OF THE COMPANY'S AUDIT COMMITTEE
The Audit Committee of the Board of Directors (the "Audit Committee")
assists the Board in fulfilling its responsibility for oversight of the quality
and integrity of the Company's accounting, auditing and reporting practices.
Annually, the Audit Committee recommends to the Board the selection of the
Company's independent auditors. Deloitte & Touche LLP was selected as the
Company's independent auditors for fiscal 2002.
The Audit Committee currently consists of three directors of the Board who
are not employees of the Company. The Company's common shares are listed on the
New York Stock Exchange ("NYSE"). The members of the Audit Committee have been
reviewed by the Board and determined to be independent as defined in Sections
303.01(B)(2)(a) and (3) of the NYSE's listing standards.
The Audit Committee has reviewed and discussed the audited financial
statements with management and Deloitte & Touche LLP. Management has the primary
responsibility for the financial statements and the reporting process. The Audit
Committee has discussed with Deloitte & Touche LLP the matters required to be
discussed by SAS 61 (Codification of Statements on Auditing Standards, AU
Section 380), as modified or supplemented. The Audit Committee has received
written disclosures and a letter from Deloitte & Touche LLP required by
Independence Standards Board Standard No. 1, as modified or supplemented, and
has discussed the independence of Deloitte & Touche LLP with Deloitte & Touche
LLP. The Audit Committee has also considered whether Deloitte & Touche LLP's
provision of financial information systems design and implementation services,
if any, and other non-audit services to the Company is compatible with
maintaining the independence of Deloitte & Touche LLP. The fees paid by the
Company to Deloitte & Touche LLP during fiscal 2002 were as follows:
FINANCIAL INFORMATION SYSTEMS DESIGN
AUDIT FEES AND IMPLEMENTATION FEES ALL OTHER FEES
- ---------- ------------------------------------ --------------
$374,000 $0 $313,000
Based on these discussions and a review of all the items delivered, the
Audit Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for 2002 for
filing with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
W. Eric Carlborg, Chairman
Sheldon M. Berman
Brenda J. Lauderback
8
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the individual
compensation paid to the Company's Chief Executive Officer and each of the four
other most highly compensated executive officers for services in all capacities
to the Company for fiscal years 2002, 2001 and 2000.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- --------------------------------
AWARDS PAYOUTS
-------------------- ---------
RESTRICTED LONG-TERM
STOCK STOCK INCENTIVE ALL OTHER
FISCAL SALARY BONUS OTHER AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND POSITION YEAR ($) ($) ($)(A) ($) (#)(B) ($) ($)(C)(D)
- ----------------- ------ ------- --------- ------ ---------- ------- --------- ------------
Michael J. Potter, 2002 700,000 1,400,000 -- -- 325,000 -- 13,425
Chairman of the Board, 2001 696,154 0 -- -- 300,000 -- 10,535
Chief Executive Officer, 2000 564,423 325,000 -- -- 300,000 -- 9,238
and President
Albert J. Bell, 2002 675,000 1,350,000 -- -- 275,000 -- 14,598
Vice Chairman of the Board 2001 671,154 0 -- -- 300,000 -- 11,428
and Chief Administrative
Officer 2000 550,000 312,500 -- -- 300,000 -- 9,720
Jeffrey G. Naylor, 2002 390,731 492,000 -- -- 50,000 -- 6,731
Senior Vice President and 2001 146,154 240,000 -- -- 150,000 -- 0
Chief Financial Officer (e) 2000 -- -- -- -- -- -- --
Brad A. Waite, 2002 356,250 450,000 -- -- 75,000 -- 17,569
Executive Vice President, 2001 357,692 0 -- -- 100,000 -- 13,544
Human Resources and 2000 312,548 99,000 -- -- 100,000 -- 11,196
Loss Prevention
Kent Larsson, 2002 348,077 420,000 -- -- 50,000 -- 35,640
Executive Vice President, 2001 339,231 0 -- -- 75,000 -- 27,132
Marketing 2000 329,423 99,000 -- -- 50,000 -- 21,174
- ---------------
(a) Exclusive of the value of perquisites or other personal benefits because
they do not exceed the lesser of $50,000 or 10% of total annual salary and
bonus for the named executive officer.
(b) Non-qualified options granted pursuant to the Big Lots, Inc. 1996
Performance Incentive Plan, as amended.
(c) Company matching contribution to the Big Lots, Inc. Savings Plan (401K)
and/or the Big Lots, Inc. Supplemental Savings Plan (Top Hat). The matching
contribution for Messrs. Potter, Bell, Waite, and Larsson was $8,000 in
fiscal 2002, and $6,800 in fiscal 2001 and fiscal 2000. The matching
contribution for Mr. Naylor was $6,731 in fiscal 2002, and $0 in fiscal 2001
and fiscal 2000.
(d) Accruals to the Big Lots, Inc. Supplemental Pension Plan for fiscal 2002 for
Messrs. Potter, Bell, Naylor, Waite, and Larsson were $5,425, $6,598, $0,
$9,569, and $27,640, respectively. Accruals for fiscal 2001 for Messrs.
Potter, Bell, Naylor, Waite, and Larsson were $3,735, $4,628, $0, $6,744,
and $20,332, respectively. Accruals for fiscal 2000 for Messrs. Potter,
Bell, Naylor, Waite, and Larsson were $2,438, $2,920, $0, $4,396, and
$14,374, respectively.
(e) Mr. Naylor began his employment with the Company in September, 2001.
EMPLOYMENT AGREEMENTS. The Company is a party to employment agreements
with certain of its key executives ("Key Executive Agreements"). On June 26,
2000, Messrs. Potter and Bell entered into Key Executive Agreements, and, on
July 29, 2002, Messrs. Larsson and Waite entered into Key Executive Agreements.
The terms of the Key Executive Agreements are substantially similar and they are
described collectively herein except where their terms materially differ. The
Key Executive Agreements are intended to assure the Company that it will have
the continued dedication, undivided loyalty, and objective advice and counsel
from these key executives in the event of a proposed transaction, or the threat
of a transaction, which could result in a change of control of the Company.
Annually, the Compensation Committee reviews the performance of each key
executive to determine whether the key executive's salary and bonus should be
adjusted. Bonuses are not payable under the Key Executive Agreements unless the
Company achieves a minimum threshold of its earnings targets. Messrs. Potter and
Bell's bonuses are subject to a maximum of 200% of their respective base
salaries, and Messrs. Larsson and Waite's bonuses are subject to a maximum of
120% of their respective base salaries. The
9
Key Executive Agreements require that the key executive devote his full business
time to the affairs of the Company and prohibit the key executive from competing
with the Company during his employment and for a two-year period thereafter, in
the case of Messrs. Potter and Bell, and during employment and for a one-year
period thereafter, in the case of Messrs. Larsson and Waite. The period is
reduced to six months for all key executives in the event of termination of
employment following a "Change of Control," as such term is defined in the Key
Executive Agreements.
Under the Key Executive Agreements, each of the key executives' employment
may be terminated by the Company for cause, as defined therein. If a key
executive is terminated for cause, the Company has no further obligation to pay
any compensation or to provide benefits to the key executive. If either Mr.
Potter or Mr. Bell is terminated without cause, such key executive will become
entitled to receive continued salary payments and benefits for two years and
will receive a pro-rata bonus for the fiscal year in which the action occurs.
Should Messrs. Larsson or Waite be terminated without cause, the affected key
executive will become entitled to receive continued salary payments and benefits
for one year and will receive a pro-rata bonus for the fiscal year in which the
termination occurs. Both Mr. Potter and Mr. Bell may terminate their respective
employment under their Key Executive Agreement if the Company adversely changes
the key executive's authority, title, or position. The Key Executive Agreements
provide that in the event a key executive is terminated within 24 months of a
Change of Control, the key executive will receive a lump sum payment (net of any
applicable withholding taxes) in an amount equal to two years salary and two
years annual stretch bonus and will be entitled to receive certain plan benefits
for two years, in the case of Messrs. Potter and Bell, and for one year, in the
case of Messrs. Larsson and Waite.
A Change of Control of the Company would also cause each of the key
executives to receive a payment in the amount necessary to hold them harmless
from the effects of Section 280G and 4999 of the Internal Revenue Code (the "Tax
Gross-Up Amount"), which Code sections could subject the payments due under
these employment agreements to excise tax liability (see also "Executive Change
In Control Severance Agreements"). The compensation payable on account of a
Change of Control may be subject to the deductibility limitations of Sections
162(m) and 280G of the Internal Revenue Code.
The following tables reflect the (i) number and value of options granted in
fiscal 2002 to the executive officers named in the Summary Compensation Table,
and (ii) the aggregate exercises and number and value of exercisable and
unexercisable options at February 1, 2003, for those named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZED VALUE AT
PCT. OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(C)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------------
NAME GRANTED(#)(A) FISCAL YEAR(B) SHARE ($) DATE 5% ($) 10% ($)
---- ------------- -------------- --------- ---------- ------------ ------------
Michael J. Potter 325,000 17.5% 11.980 25-Feb-12 2,448,601 6,205,236
Albert J. Bell 275,000 14.8% 11.980 25-Feb-12 2,071,893 5,250,585
Jeffrey G. Naylor 50,000 2.7% 11.980 25-Feb-12 376,708 954,652
Brad A. Waite 75,000 4.0% 11.980 25-Feb-12 565,062 1,431,978
Kent Larsson 50,000 2.7% 11.980 25-Feb-12 376,708 954,652
- ---------------
(a) Options granted pursuant to the 1996 Performance Incentive Plan. Vesting is
over five years without regard to the attainment of any performance goals.
(b) Based on 1,861,800 non-qualified options granted to all associates in fiscal
2002 pursuant to the 1996 Performance Incentive Plan.
(c) Assumes a respective 5% or 10% annualized appreciation in the underlying
common share price from the date of grant to the expiration date less the
aggregate exercise price. The ultimate amount realized will depend on the
market value of the securities at a future date.
10
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
UNEXERCISED OPTIONS AT FEBRUARY 1, 2003
---------------------------------------------------------
NUMBER OF VALUE OF IN-THE-MONEY
SHARES NUMBER OF OPTIONS (#) OPTIONS (B)($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED (A)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------------- ----------- ------------- ----------- -------------
Michael J. Potter 0 0 489,688 775,000 129,881 426,400
Albert J. Bell 0 0 496,876 725,000 140,476 400,400
Jeffrey G. Naylor 0 0 30,000 170,000 72,000 314,000
Brad A. Waite 0 0 257,188 230,000 52,244 137,300
Kent Larsson 0 0 136,125 152,000 48,275 109,100
- ---------------
(a) Difference of the sales price on the dates of exercise and the option
exercise price.
(b) The value of in-the-money unexercised options is based on the fair market
value of Big Lots, Inc. common shares ($12.50) at February 1, 2003, minus
the aggregate exercise prices.
COMPARISON OF FIVE YEAR TOTAL SHAREHOLDER RETURN
The following graph demonstrates a five year comparison of cumulative total
return for Big Lots, Inc., the Standard & Poor's 500 Index and the Standard &
Poor's Retail Stores Composite Index.
COMPARISON OF FIVE YEAR TOTAL STOCKHOLDER RETURN (A)
[PERFORMANCE GRAPH]
-------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------------------------------------------------------------------------------------------------------------------
Big Lots, Inc. $100.00 $ 40.58 $ 33.74 $ 29.54 $ 26.38 $ 30.42
-------------------------------------------------------------------------------------------------------------------
S&P 500 Retailing $100.00 $167.57 $183.68 $185.05 $200.69 $143.95
-------------------------------------------------------------------------------------------------------------------
S&P 500 $100.00 $132.49 $142.60 $143.13 $120.64 $ 93.53
-------------------------------------------------------------------------------------------------------------------
- ---------------
(a) Assumes $100 invested on February 1, 1998 in Big Lots, Inc. common shares
compared to the same amount invested in the other funds shown at the same
time. Dividends, if any, are assumed to be reinvested.
11
COMPENSATION PLANS AND ARRANGEMENTS
DIRECTOR STOCK OPTION PLAN. The Director Stock Option Plan is administered
by the Compensation Committee pursuant to an established formula. The number of
shares available under the Director Stock Option Plan initially consisted of an
original allocation of 500,000 shares (781,250 shares as adjusted to account for
the five for four stock splits which occurred in December, 1996 and June, 1997).
Neither the Board nor the Compensation Committee exercise any discretion in
administering the Director Stock Option Plan, and the administration performed
by the Compensation Committee is ministerial in nature. The formula which
governs the grant of stock options to eligible participants may be amended by
the Board, but not more frequently than once in any six month period. Under the
current formula, each of the eligible outside directors are granted annually
stock options for the purchase 10,000 of the Company's common shares, for an
exercise price equal to the fair market value on the date of grant. Each annual
grant occurs on the last day of the quarterly trading period next following the
Annual Meeting.
Options granted under the Director Stock Option Plan become exercisable
over three years beginning upon the first annual anniversary of the grant date,
whereby the option becomes exercisable for 20% of the shares on the first
anniversary, 60% on the second anniversary, and 100% on the third anniversary.
Options automatically terminate ten years and one month following the date of
grant. An optionee may exercise a stock option only during specific quarterly
trading periods, and only if at all times during the period beginning on the
date such option was granted and ending on the day three months before the date
of exercise, he or she was a director of the Company. Options granted under the
Director Stock Option Plan are not transferable other than by will or the laws
of descent and distribution.
1996 PERFORMANCE INCENTIVE PLAN, AS AMENDED. The 1996 Performance Incentive
Plan, as amended (the "Incentive Plan") is administered by the Compensation
Committee. The Incentive Plan authorizes the grant of incentive or nonqualified
stock options, stock appreciation rights, restricted stock, stock equivalent
unit and performance unit awards (collectively referred to as "Awards"), any of
which may be granted on a stand alone, combination or tandem basis. The
Compensation Committee determines the individuals to whom Awards are to be made;
the number of shares covered by each Award; the term of the Award; its vesting,
exercise period or settlement; the type of consideration, if any, to be paid to
the Company upon exercise of an Award; and all other terms and conditions of the
Awards. The purpose of the Incentive Plan is to provide a flexible, long-term
vehicle to attract, retain and motivate officers and employees.
The number of common shares available for delivery under the Incentive Plan
consists of an initial allocation of 2,000,000 shares (3,125,000 shares as
adjusted to account for the five for four stock splits which occurred in
December, 1996 and June, 1997), which is increased, beginning with the first
fiscal year in which the Incentive Plan was in effect and during each fiscal
year following, by a number of shares equal to one percent (1.0%) of the total
number of issued common shares of the Company as of the start of each of the
Company's fiscal years. Unused shares from previous fiscal years remain
available for delivery under the Incentive Plan; provided, however, the total
awards of stock options or restricted stock outstanding and shares available for
use under the Incentive Plan combined with any awards of stock options or
restricted stock outstanding from any other plan of the Company shall not exceed
fifteen percent (15%) of the total shares of issued and outstanding common
shares as of any measurement date.
The Incentive Plan limits the number of common shares of the Company that
can be represented by stock options, stock appreciation rights, or restricted
stock awarded to any participant during any single fiscal year to no more than
1,000,000 shares. As a further limitation, the maximum amount of compensation
with respect to performance units and stock equivalent units that may be paid in
any fiscal year (within the meaning of Section 162(m) of the Code) to any
participant with respect to any fiscal year is $2,000,000. Awards under the
Incentive Plan may be made to any salaried employee, consultant or advisor of
the Company or its affiliates, as designated by the Compensation Committee.
Historically, options have been granted to approximately 200 employees in any
given year.
The Incentive Plan provides for the Award of options which may be either
incentive stock options or non-qualified options. For both incentive and
non-qualified options, the exercise price may be not less than 100 percent of
the fair market value of a common share of the Company at the time the option is
granted. Any
12
option intended to qualify as an incentive stock option must meet all
requirements of Section 422 of the Code. The Compensation Committee may grant
stock appreciation rights to any eligible salaried employee, consultant or
advisor on such terms as the Compensation Committee may determine.
The Compensation Committee may grant shares of restricted stock, stock
equivalent units, and performance units, subject to such conditions and
restrictions as the Incentive Plan specifies and otherwise as the Compensation
Committee may determine. These grants may be made alone or in tandem with other
Awards. Stock equivalent units and performance units may be payable upon vesting
in cash, or may be convertible to common shares or other form of value
determined by the Compensation Committee.
No Award under the Incentive Plan may be assigned or transferred by the
grantee other than by will or the laws of descent and distribution, pursuant to
a qualified domestic relations order (as defined by the Code) or as may
otherwise be permitted by the Compensation Committee. In the absence of the
first two exceptions, all rights may be exercised during the grantee's lifetime
only by the grantee.
The Compensation Committee may from time to time, at its discretion, amend
or terminate the Incentive Plan, except that no such amendment or termination
shall impair any rights under any Award made prior to the amendment's effective
date without the consent of the grantee, and provided that no such amendment
shall increase the number of shares available under the Incentive Plan or change
the price at which stock options or stock appreciation rights may be granted
unless approved by shareholders in accordance with applicable laws and
regulations. The Incentive Plan expires on December 31, 2005, or may be
terminated on such earlier date as the Board may determine.
PENSION PLAN AND TRUST. The Company maintains a noncontributory defined
benefit pension plan (the "Pension Plan") for all employees whose hire date
precedes April 1, 1994, who have reached the age of 21 and who have worked for
the Company for more than one year. The amount of the Company's annual
contribution to the Pension Plan is actuarially determined to accumulate
sufficient funds to maintain projected benefits. Effective January 1, 1993, the
computation of annual retirement benefits payable upon retirement under the
Pension Plan is 1% of final average annual compensation multiplied by the years
of service up to a maximum of 25. This benefit is payable when a participant
reaches the normal retirement age of 65. However, the Pension Plan does provide
an early retirement option, and employment beyond the normal retirement age is
permitted by agreement with the Company. For purposes of calculating benefits
under the Pension Plan, compensation is defined to include a two month
equivalent of the total cash remuneration (including overtime) paid for services
rendered during a plan year prior to salary reductions pursuant to Sections
401(k) or 125 of the Code, including bonuses, incentive compensation, severance
pay, disability payments and other forms of irregular payments. Effective
January 1, 1996, the benefits accrued for certain highly compensated
individuals, including all executive officers, were frozen at the then current
levels.
The table below illustrates the amount of annual benefits payable at age 65
to a person in the specified average compensation and years of service
classifications under the Pension Plan combined with the Supplemental Pension
Plan.
FINAL YEARS OF SERVICE
AVERAGE -------------------------------------
COMPENSATION 10 15 20 25
------------ ------- ------- ------- -------
$100,000 $10,000 $15,000 $20,000 $25,000
$125,000 $12,500 $18,750 $25,000 $31,250
$150,000 $15,000 $22,500 $30,000 $37,500
$175,000 and above $17,200 $25,800 $34,400 $43,000
The maximum annual benefit payable under the Pension Plan is restricted by
the Internal Revenue Code. At December 31, 2002, the maximum final five year
average compensation was $172,000. At December 31, 2002, Messrs. Potter, Bell,
Naylor, Waite, and Larsson had 11, 15, 0, 14, and 14 years of credited service,
respectively. The compensation taken into account in computing benefits under
the Pension Plan includes base salary and bonuses. Income recognized as a result
of the exercise of stock options is disregarded in computing benefits under
13
the Pension Plan. A participant may elect whether the benefits are paid in the
form of a single life annuity, a joint and survivor annuity or as a lump sum
upon reaching the normal retirement age of 65.
SUPPLEMENTAL PENSION PLAN. The Company maintains a non-qualified
supplemental employee retirement plan ("Supplemental Pension Plan") for those
executives whose benefits were frozen in the Pension Plan on or subsequent to
January 1, 1996. The Supplemental Pension Plan constitutes a contract to pay
benefits upon retirement as therein defined. The Supplemental Pension Plan is
designed to pay the same benefits in the same amount as if the participants
continued to accrue benefits under the Pension Plan. The Company has no
obligation to fund the Supplemental Pension Plan, and all assets and amounts
payable under the Supplemental Pension Plan are subject to the claims of general
creditors of the Company. The table below illustrates the amount of annual
benefit payable at age 65 to a person in the specified average compensation and
years of service classification under the Supplemental Pension Plan.
FINAL YEARS OF SERVICE
AVERAGE -------------------------------------
COMPENSATION 10 15 20 25
------------ ------- ------- ------- -------
$100,000 $10,000 $15,000 $20,000 $25,000
$125,000 $12,500 $18,750 $25,000 $31,250
$150,000 $15,000 $22,500 $30,000 $37,500
$175,000 and above $17,200 $25,800 $34,400 $43,000
SAVINGS PLAN. All of the executive officers referred to in the Summary
Compensation Table, as well as substantially all other full-time employees of
the Company and its subsidiaries, are eligible to participate in the Big Lots,
Inc. Savings Plan (the "Savings Plan" or "401K"). In order to participate in the
Savings Plan, an eligible employee must satisfy applicable age and service
requirements and must make contributions to the Savings Plan ("Participant
Elective Contributions").
Participant Elective Contributions are made through authorized payroll
deductions to one or more of the several investment funds established under the
Savings Plan. One of the funds is a stock fund that is invested solely in common
shares of the Company. All Participant Elective Contributions are matched by the
Company ("Employer Matching Contributions") at a rate of 100% for the first 2%
of salary contributed, and 50% for the next 4% of salary contributed; however,
only Participant Elective Contributions of up to six percent of the employee's
compensation will be matched.
Each participant has a nonforfeitable right to all accrued benefits
pertaining to Participant Elective Contributions. Each participant also has a
nonforfeitable right to all accrued benefits pertaining to Employer Matching
Contributions in the event of retirement or other termination of employment (a)
on or after the participant's 65th birthday, (b) on account of disability, or
(c) by reason of death. A participant whose employment terminates under other
circumstances will have a nonforfeitable right to a portion of accrued benefits
pertaining to Employer Matching Contributions determined under a schedule based
on years of service. All other unvested accrued benefits will be forfeited.
SUPPLEMENTAL SAVINGS PLAN. The Company maintains a non-qualified salary
deferral plan (the "Supplemental Savings Plan" or "Top Hat") for those
executives participating in the Savings Plan who desire to contribute more than
the amount allowable under the Savings Plan. The Supplemental Savings Plan
constitutes a contract to pay deferred salary, and limits deferrals in
accordance with prevailing tax law. The Supplemental Savings Plan is designed to
pay the deferred compensation in the same amount as if the contributions had
been made to the Savings Plan. The Company has no obligation to fund the
Supplemental Savings Plan, and all assets and amounts payable under the
Supplemental Savings Plan are subject to the claims of general creditors of the
Company and its affiliates.
EXECUTIVE BENEFIT PLAN. Most of the executive officers are eligible to
participate in the Company's Executive Benefit Plan (the "Benefit Plan"). The
Benefit Plan is a supplemental health benefit plan which reimburses participants
for medical costs incurred but not covered by the Company's Associate Benefits
Plan, up to an annual maximum reimbursement of $40,000 per participant. Amounts
received by participants are treated as taxable income. Amounts received
exceeding the applicable threshold by the individuals named in the Summary
14
Compensation Table are included in the amounts reflected in the values of
personal benefits received by such individuals.
EXECUTIVE CHANGE IN CONTROL SEVERANCE AGREEMENTS. Since April 18, 1989,
the Company has maintained Executive Severance Agreements with many of its key
officers and employees (currently approximately 64 persons). The agreements
expire on the anniversary of their execution and are automatically extended on
an annual basis unless the Company provides at least 90 days notice that any
particular agreement will not be extended. The agreements provide for severance
benefits if, within 24 months after a Change in Control (as defined in the
agreements and below), the key officer or employee's employment is terminated by
the Company (other than for Cause, as defined in the agreements), or the key
officer or employee resigns because of a material change in the circumstances of
his or her employment. For purposes of the agreements, "Change in Control" means
any one or more of the following: (i) any person or group (as defined for
purposes of Section 13(d) of the Securities Exchange Act of 1934) becomes the
beneficial owner of, or has the right to acquire (by contract, option, warrant,
conversion of convertible securities or otherwise), 20% or more of the
outstanding equity securities of the Company entitled to vote for the election
of directors; (ii) a majority of the Board of Directors is replaced within any
period of two years or less by directors not nominated and approved by a
majority of the directors in office at the beginning of such period (or their
successors so nominated and approved), or a majority of the Board of Directors
at any date consists of persons not so nominated and approved; or (iii) the
shareholders of the Company approve an agreement to merge or consolidate with
another corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including without limitation, a plan
of liquidation). Notwithstanding these provisions, the agreements provide that a
Change in Control shall not result from a transaction in which the Company
exchanges less than 50% of its then outstanding equity securities for 51% or
more of the outstanding equity securities of another corporation. The agreements
provide for the following severance benefits: (i) for certain key officers
(including Mr. Naylor) having a position of vice president (or above) of the
Company (or its affiliates), a lump-sum payment equal to 200% of the key
officer's then-current annual salary and stretch bonus; or (ii) for other
employees having a position of director of a department of the Company (or its
affiliates), a lump-sum payment equal to 100% of the employee's then-current
annual salary and stretch bonus. Messrs. Potter, Bell, Waite, and Larsson are
not a party to such an agreement, but each has substantially similar provisions
contained in his respective employment agreement. In addition, the 1996
Performance Incentive Plan provides for immediate vesting of all outstanding
options and shares, respectively, in the event of such a Change in Control
(please see the Fiscal Year End Option Values table above). The key officer or
employee will also become entitled to reimbursement of legal fees and expenses
incurred by the key officer or employee in seeking to enforce his or her rights
under their agreement. Additionally, to the extent that payments to the key
officer or employee pursuant to his or her agreement (together with any other
amounts received by the key officer or employee in connection with a Change in
Control) would result in triggering the provisions of Sections 280G and 4999 of
the Internal Revenue Code, each agreement provides for the payment of an
additional amount (the "Tax Gross-Up Amount") such that the employee receives,
net of excise taxes, the amount he or she would have been entitled to receive in
the absence of the excise tax provided in Section 4999 of the Internal Revenue
Code. The compensation payable on account of a change in control may be subject
to the deductibility limitations of Sections 162(m) and/or 280G of the Internal
Revenue Code.
INDEPENDENT AUDITORS
The Company engaged Deloitte & Touche LLP as its independent public
accountants to audit its consolidated financial statements for fiscal 2002.
Deloitte & Touche LLP has served as the Company's independent auditors since
October, 1989. The Company's Audit Committee annually reviews and recommends to
the Board the selection of the Company's independent auditors. The Company, in
selecting its independent auditors for the year ending January 31, 2004, intends
to assume a proactive stance and adhere to the laws, regulations and rules
concerning auditor independence recently enacted under the Sarbanes-Oxley Act of
2002 and by the Securities and Exchange Commission and the New York Stock
Exchange, notwithstanding the fact that such laws, regulations and rules are not
mandatory for the Company's selection of its independent auditors for the year
ending January 31, 2004.
A representative of Deloitte & Touche LLP will be present at the Annual
Meeting to respond to appropriate questions and to make a statement if so
desired.
15
SHAREHOLDER PROPOSALS
Any proposals of shareholders which are intended to be presented at the
Company's 2004 Annual Meeting of Shareholders must be received by the Company at
its principal executive offices by December 10, 2003 to be eligible for
inclusion in next year's Proxy Statement. Such proposals must be submitted in
accordance with Rule 14a-8 of the Securities Exchange Act of 1934, as amended,
and the Company's Code of Regulations. If a shareholder intends to present a
proposal at the 2004 Annual Meeting of Shareholders, but has not sought the
inclusion of such a proposal in the Company's 2004 Proxy Statement, such
proposal must be received by the Company at its principal executive offices by
February 23, 2004, or the Company's management proxies will be entitled to use
their discretionary voting authority should such proposal then be raised,
without any discussion of the matter in the Company's 2004 Proxy Statement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of common shares and other equity
securities of the Company. Executive officers, directors and greater than 10
percent shareholders are required by the regulations of the Securities and
Exchange Commission to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10 percent
beneficial owners were complied with during fiscal 2002, except as described
below. In making this statement, we have relied upon the written representations
of the Company's directors and executive officers.
Due to the changes in Federal securities laws brought about by the
Sarbanes-Oxley Act of 2002, transactions involving executive officers'
contributions to the Company's Supplemental Savings Plan, which contributions
are reflected as investments in phantom units of the Company's common shares,
must now be reported to the Securities and Exchange Commission within two
business days of the contribution. Since systems were not in place for the
administrator of the Supplemental Savings Plan to provide the executive officers
with the information necessary to make such reports in a timely fashion, the
following executive officers were precluded from timely reporting transactions
in phantom units of the Company's common shares as the result of contributions
to the Supplemental Savings Plan: Mr. Potter (filed a Form 5 to report 6 such
transactions); Mr. Bell (filed a Form 5 to report 6 such transactions); Mr.
Larsson (filed a Form 5 to report 9 such transactions); Mr. Donald A. Mierzwa,
the Company's Executive Vice President, Store Operations (filed a Form 5 to
report 9 such transactions); and Mr. Joe R. Cooper, the Company's Vice President
Treasurer (filed a Form 5 to report 7 such transactions). Messrs. Potter, Bell
and Cooper have timely reported all transactions since November 22, 2002.
Messrs. Larsson and Mierzwa have timely reported all transactions since January
4, 2003.
ANNUAL REPORT ON FORM 10-K
Shareholders may receive a copy of the Company's fiscal 2002 Annual Report
on Form 10-K without charge by writing to: Investor Relations Department, Big
Lots, Inc., 300 Phillipi Road, Columbus, Ohio 43228-5311. The Form 10-K may also
be accessed on the Company's website located at www.biglots.com.
16
OTHER MATTERS
This solicitation of proxies is made by and on behalf of the Board of
Directors. In addition to mailing copies of this Proxy Statement and the
accompanying Notice of Annual Meeting of Shareholders and proxy card to all
shareholders of record on the record date, the Company will request brokers,
custodians, nominees and other fiduciaries to forward copies of this material to
persons for whom they hold common shares of the Company in order that such
shares may be voted. Solicitation may also be made by the Company's officers and
regular employees personally or by telephone or telegraph. The cost of the
solicitation will be incurred by the Company. The Company has also retained
Georgeson & Company Inc. to aid in the solicitation of proxies for a fee
estimated to be $8,000.00, plus reasonable out-of-pocket expenses.
If the accompanying proxy card is executed and returned, the shares
represented thereby will be voted in accordance with any specifications made by
the shareholder. In the absence of any such specifications, they will be voted
to elect all nine nominees as set forth under Proposal One and to approve
Proposal Two.
The presence of any shareholder at the Annual Meeting will not operate to
revoke his or her proxy. A proxy may be revoked at any time before it is
exercised by filing with the Secretary of the Company a notice of revocation or
a duly executed proxy bearing a later date. A proxy may also be revoked by
attending the Annual Meeting and giving notice of revocation to the Secretary of
the meeting, either in writing or in open meeting.
If any other matters shall properly come before the Annual Meeting, the
persons named in the proxy, or their substitutes, will vote thereon in
accordance with their judgment. The Board of Directors does not know of any
other matters which will be presented for action at the Annual Meeting.
By order of the Board of Directors.
April 8, 2002
CHARLES W. HAUBIEL II,
Vice President, General Counsel
and Corporate Secretary
17
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DETACH HERE
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BIG LOTS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE MAY 20, 2003 ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Michael J. Potter and Albert J. Bell, and
each of them, with full power of substitution, as proxies for the undersigned to
attend the Annual Meeting of Shareholders of Big Lots, Inc., to be held at 300
Phillipi Road, Columbus, Ohio, at 9:00 a.m. EDT on May 20, 2003, and thereat,
and at any adjournment thereof, to vote and act with respect to all common
shares of the Company which the undersigned would be entitled to vote, with all
the power the undersigned would possess if present in person, as follows:
The Board of Directors recommends a vote FOR the nominees named below.
1. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) [ ] to vote for all nominees listed below [ ]
Albert J. Bell, Sheldon M. Berman, David T. Kollat, Brenda J. Lauderback,
Phillip E. Mallot, Ned Mansour, Michael J. Potter, Russell Solt and
Dennis B. Tishkoff
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided below.)
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(Continued, and to be dated and signed, on the other side)
DETACH HERE
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(Continued from the other side)
The Board of Directors recommends a vote FOR the proposal.
2. In their discretion, to vote upon such other business as may properly come
before the meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Date: , 2003
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Signature(s) of Shareholder(s)
PLEASE SIGN AS YOUR NAME OR
NAMES APPEAR HEREON. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR
FULL TITLE. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE
NAME.
